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Forming a Business
Economics
Accounting
Key Terms
Key Terms
100
What are the advantages and disadvantages of sole proprietorships?
The advantages of sole proprietorships include ease of starting and ending, ability to be your own boss, pride of ownership, retention of profit, and no special taxes. The disadvantages include unlimited liability, limited financial resources, difficulty in management, overwhelming time commitment, few fringe benefits, limited growth, and limited life span.
100
What is economics?
Economics is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.
100
What is accounting?
Accounting is the recording, classifying, summarizing, and interpreting of financial events and transactions that affect an organization. The methods we use to record and summarize accounting data into reports are called an accounting system.
100
Liabilities
What the business owes to others (debts)
100
Inflation
A general rise in the price of goods and services over time
200
What does unlimited liability mean?
Unlimited liability means that sole proprietors and general partners must pay all debts and damages caused by their business. They may have to sell their houses, cars, or other personal possessions to pay business debts.
200
What is capitalism?
Capitalism is an economic system in which all or most of the means of production and distribution are privately owned and operated for profit.
200
How does managerial accounting differ from financial accounting?
Managerial accounting provides information and analyses to managers within the firm to assist them in decision making. Financial accounting provides information and analyses to external users of data such as creditors and lenders.
200
Stagflation
A situation when the economy is slowing but prices are going up anyhow
200
Fixed Assets
Assets that are relatively permanent, such as land, buildings, and equipment
300
What are the advantages and disadvantages of partnerships?
The advantages include more financial resources, shared management and pooled knowledge, and longer survival. The disadvantages include unlimited liability, division of profits, disagreements among partners, and difficulty of termination.
300
What are the advantages and disadvantages of socialism?
Socialism intends to create more social equity. Workers in socialist countries usually receive more education, health care, and other benefits and also work fewer hours, with longer vacations. The major disadvantage of socialism is that it lowers the incentive to start a business or to work hard. Socialist economies tend to have a higher unemployment rate and a slower growth rate than capitalist economies.
300
What are the six steps of the accounting cycle?
The six steps of the accounting cycle are (1) analyzing documents; (2) recording information into journals; (3) posting that information into ledgers; (4) developing a trial balance; (5) preparing financial statements—the balance sheet, income statement, and statement of cash flows—and (6) analyzing financial statements.
300
Consumer Price Index (CPI)
Monthly statistics that measure the pace of inflation or deflation
300
Acquisition
One company's purchase of the property and obligations of another company
400
What is a merger?
A merger is the result of two firms forming one company. The three major types are vertical mergers, horizontal mergers, and conglomerate mergers.
400
What is a mixed economy?
A mixed economy is part capitalist and part socialist. Some businesses are privately owned, but taxes tend to be high to distribute income more evenly among the population.
400
What is a balance sheet?
A balance sheet reports the financial position of a firm on a particular day. The fundamental accounting equation used to prepare the balance sheet is Assets + Liabilities = Owners′ equity.
400
Gross Profit (or Gross Margin)
How much a firm earned by buying (or making) and selling merchandise.
400
Monopoly
A degree of competition in which only one seller controls the total supply of a product of service, and sets the price
500
What are the benefits and drawbacks of being a franchisee?
The benefits include getting a nationally recognized name and reputation, a proven management system, promotional assistance, and pride of ownership. Drawbacks include high franchise fees, managerial regulation, shared profits, and transfer of adverse effects if other franchisees fail.
500
What are the four phases of business cycles?
In an economic boom, businesses do well. A recession occurs when two or more quarters show declines in the GDP, prices fall, people purchase fewer products, and businesses fail. A depression is a severe recession. Recovery occurs when the economy stabilizes and starts to grow
500
What are the four key categories of ratios?
The four key categories of ratios are liquidity ratios, leverage (debt) ratios, profitability (performance) ratios, and activity ratios.
500
Leveraged Buyout (LBO)
An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing
500
Retained Earnings
The accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends.